Nordstrom Local: A Test in Disrupting Amazon

Nordstrom just announced a bold new retail concept called Nordstrom Local, which it will test in West Hollywood starting October 3, 2017. The store features a host of services, but carries no dedicated inventory. Instead, customers can access a variety of services such as: fashion consulting from a personal stylist, lounging with a handcrafted expresso or a glass of beer or wine, selecting merchandise to transfer in for inspection, trying on selections, custom fitting and alterations, or even getting a manicure.

The Nordstrom Local concept can be described as “disrupting the disruptor.” Once a leading force in high-end retailing, Nordstrom is now defending itself against the Amazon juggernaut. Nordstrom wants to disrupt the disruptor with something Amazon does not offer: a wide range of high-end personal retail services. Further, these small, 3,000 sq. ft. footprint “stores” leverage existing store inventories.

The concept is certainly bold enough to be disruptive. It challenges the very essence of what we think of as a retail store. “A clothing store with no merchandise — are you kidding?” Nordstrom Local is based on the realization that shopping with Amazon involves two basic steps: order and delivery. Traditional retailing combines the two steps. Nordstrom Local splits them like Amazon, but greatly enriches the first step with personalized fashion consulting and other experiences. Nordstrom Local can also beat Amazon Prime on the second step with faster delivery. It sounds like a concept well worth a test.

John Hagel predicted retailers were being forced into radical change with his “experience bazaar” concept. Many retailers responded to price pressures from Amazon by reducing salespeople and increasing inventory. He predicted this tactic would fail, and urged retailers to rethink. “What about focusing precious retail space on creating a broad range of experiences that are not just enjoyable but that help the consumer to learn faster about choices pre-purchase and about the most effective usage of the product post-purchase?” Nordstrom Local seems to be a perfect example of Hagel’s experience bazaar.

The stock market’s initial reaction to the Nordstrom Local announcement was not enthusiastic. The DOW breathed a sigh of relief on September 11, 2017 and rose 1.2% by the close in gratitude that Hurricane Irma’s damage would be a bit less than previously feared. But it was hard on Nordstrom (JWN), who’s stock price closed down 3.0%. Even the S&P retail index XRT closed up .7%.

While the market initially seems to interpret Nordstrom Local as bad news, I respectfully disagree.

Another leading retailer, Walmart, moved in a similar direction to Nordstrom Local with its June announcement to acquire Bonobos. Originally an internet-only retailer of men’s chino pants, Bonobos expanded into brick-and-mortar stores with great success. A key feature was fitting customers on site, then shipping the order. As with Nordstrom Local, the disruptive angle for Bonobo’s is providing a richly personalized retail service experience.

Walmart’s acquisition of Bonobos is part of a broad push to defend against Amazon and expand its e-commerce offering. Last year it acquired Jet.com, ShoeBuy.com and ModCloth. Then it offered two-day shipping with no membership required (versus the $99 annual fee for Amazon Prime).

Walmart’s e-commerce strategy seems to be paying off. Its first quarter 2017 online sales expanded by 63 percent. Its stock price YTD is up 14.6% while XRT is down 8.3% over the same timeframe.

Both the Nordstrom Local and Walmart in store fitting strategy turn the in-person shopping experience’s inherent characteristics into competitive advantages that Amazon will be hard pressed to counter with drones and discounts.

The Nordstrom Local and Walmart edge is that having a tailor fit you in person is just better—no matter how little it costs to send ill-fitting purchases back. And both take advantage of my favorite definition of a service: “A service is a bundle of benefits that is simultaneously produced and consumed.” You can’t consume a luxury service unless you are in the presence of the service provider. The quality of the service and the physical proximity of provider and consumer are the ultimate defensible advantages.

About the Author

Karen, Harte Hanks CEO, has an experienced track record for winning, and she knows our business inside and out. Not only has Karen been a director of Harte Hanks since 2009, she also brings nearly 15 years of COO and president experience in the telecom, cloud and managed services industries in both consumer and business segments, stemming from her time at CenturyLink, Inc. During her tenure, she was instrumental in leading the company’s transformation from a local telephone business to an industry leader in advanced communications services, and driving revenue growth from $1.5 billion to more than $18 billion. Karen has a proven track record of successfully growing a company both organically and through acquisitions (she’s overseen 15 of them) and in navigating a business through shifts in industry dynamics.